Lebanon calls in trio of leading management consulting firms

The Lebanese government has hired a trio of leading management consulting firms to audit the country’s embattled central bank. 

Facing its worst economic crisis since its twenty-year civil war, the country once known as the Switzerland of the Middle East is on the verge of collapsing. Earlier this year, the world’s third most indebted country was – for the first time in its history – forced to default on a $1.2 billion debt. With more repayments looming on the horizon, the pressure on the country is mounting.

To save the country from its downfall, Lebanon is in urgent need of financial support from the international community. However, while traditional allies such as the US, the European Union and in particular France have in the past been willing to grant billions to support the country, they are now taking a different stance. No longer do they want to back a corrupt system, and one which is being co-led by Iran-funded (in the eyes of the West) terrorist group Hezbollah. 

Earlier this month, talks with the International Monetary Fund (IMF) were suspended without any results, following Lebanon’s inability to quantify the debt levels of the government, the central bank and the individual banks. As it stands, the differences in estimates between the two sides are in the double-digit billion range.

Related: Out of options, Lebanon turns to IMF to save its economy.

In a bid to shed more light on the state of the country’s banking sector, Primer Minister Hassan Diab and the Cabinet have agreed to call in external consultants to conduct an audit on the Central Bank (Banque du Liban). Alvarez & Marsal has been appointed the forensic consultant and auditor, while KPMG and Oliver Wyman will carry out the financial audit.

Financial theft

The main objective of the consultants is to identify the theft that occurred in the financial sector over the past years. Lebanon is known for its high degree of corruption – the country ranks among the 20 most corrupt countries in the latest WEF Global Competitiveness Report – and there are strong suspicions (even evidence released by local media) of politicians and business leaders that have teamed up with financial services executives to enact unlawful transactions.

The consultants will in particular look into transactions that occurred after Lebanon’s central bank introduced capital controls in November last year to halt so-called ‘capital flight’ characterised by an exodus of foreign currency reserves as people seek to shield their savings from potential economic collapse.

While Lebanese people were rebuffed from cashing in large sums of money, or sending funds abroad, a small group of people including high ranking officials allegedly transferred over $6 billion to personal companies and accounts. 

“The forensic audit will achieve a significant advance towards exposing the size of financial crime,” said Diab, who has been serving as the Prime Minister of Lebanon since 21 January 2020 after the formation of a cabinet, having been appointed to the position by President Michel Aoun. 

Meanwhile, the audits will also contribute to broader discussions on how the banking sector should be reformed, which is one of the thorny issues both internally, and in discussions with external parties such as the IMF. “Naming these external advisors is the foundation stone for building reforms,” said Diab.